The majority of Americans think economic issues are the most important issues facing the country. Thus, Obama’s economic record will likely feature heavily in the upcoming campaign. Because of that, I thought it would be useful to explain in broad strokes what has happened under Obama.
In the last quarter of 2008 — just before Obama took office — the economy plunged into a very deep recession. Driven by the bursting of the housing bubble, that last quarter saw an annualized GDP decline of 8.9 percent. That 8.9 percent number was not known at the time, however. Instead, the Bureau of Economic Analysis estimated the decline at 3.8 percent. This massive miscalculation contributed to some predictable failures when it came time for policy responses.
Obama’s only meaningful policy response to the recession was the drafting and passage of the American Recovery and Reinvestment Act of 2009. The act allocated around $825 billion towards fiscal stimulus. Partially due to an underestimation of the severity of the recession and partially due to political constraints, this package was simply not enough to close the massive output gap. When we take into account the reduction in state and local government spending, total government spending barely rose at all in this period. In short, the stimulus was woefully inadequate for the recession we faced.
Nonetheless, the stimulus had some impact. Just yesterday, the CBO released another quarterly report of the impact of the stimulus. The report finds that in the last quarter, the stimulus accounted for a real GDP increase somewhere between 0.1 percent and 0.8 percent. The stimulus also accounted for somewhere between 0.2 million and 1.3 million additional full-time equivalent jobs in the same period. Near its height, the stimulus was responsible for a real GDP boost between 1.7 percent and 4.5 percent, as well as an additional 2 million to 4.8 million jobs.
Importantly, these above numbers are calculated against a no-action baseline. That is, the CBO uses modeling to calculate what the economy would have looked like with no stimulus. Then it looks at what happened instead. It then measures the difference, and that is how it comes up with the numbers. That means that if the economy would have lost 5 million jobs in the no-action baseline, but instead lost 3 million jobs, this would be counted as a 2 million job gain. And it is, at least relative to where we would have been had there been no stimulus at all.
So Obama’s economic record should probably be described as follows: his policies made things better than they would have been, but they were not enough given the scale of the recession. There is plenty of room to slam Obama for not doing more, and indeed many have done so regularly. Obama could claim — as is probably true — that Republican obstruction is what prevented him from doing more. But this is not the sort of messaging we have seen out of Obama so far, and I do not suspect we will see it any time soon.
The basic problem with this story is that it is too complicated for campaigning purposes. It involves explanations about baselines, political constraints, and initial miscalculations. Most voters — it is probably correctly assumed — cannot or will not engage in this level of analysis. Instead of this more serious discussion then, the campaigns will talk in broad terms about whether Obama’s economic policies succeeded or failed. This kind of talk is basically meaningless, but it is precisely the kind of talk that makes up electoral campaigns.
So despite the fact that Americans believe economic issues are the most important, both campaigns will not actually talk about those issues in a serious way. Anyone knowledgeable in these areas would talk about stimulus impacts relative to the no-action baseline, what we should have done instead, and how the politics of the two parties shaped the economic policies we saw. But campaigns never get into that level of depth, and that is why they are largely boring and vacuous undertakings.